Tuesday, April 23, 2024

ECONOMY | 02-02-2019 08:34

Government’s adjustment plan for Vaca Muerta puts conflict on the horizon

Paolo Rocca’s Techint and Casa Rosada at odds over shale formation as government prioritises the deficit. In the middle? At least US$200 million, according to estimates.

Despite all the smiling photos taken in the past showing President Mauricio Macri and Techint CEO Paolo Rocca together (even at the height of the now infamous “cuadernos” notebooks corruption scandal), and despite the holding group’s Tecpetrol oil division being the biggest investor in Neuquén’s top nonconventional deposits, the government and the holding are on a collision course. The reason? Incentive funds to spur the production of energy resources at Vaca Muerta – a dispute with at least US$200 million at stake.

It all stems from Resolution 46/2017 (cryptic enough for the general public), a norm set by former energy minister Juan José Aranguren and considered at the time by the government to be “a very good resolution for showcasing Vaca Muerta to the world.” But the fiscal austerity measures imposed by the International Monetary Fund (IMF) have now turned that resolution into a major headache for the Mauricio Macri administration.

The resolution basically subsidised the generation of liquid gas by paying a higher price than the market for the fuel resulting from new investment projects. Until last year it was all a win-win situation for everyone. Nobody worried about the details.

“It was a boom,” according to official sources, who point to figures showing the production of shale gas to have risen 45 percent last year.

Indeed Tecpetrol was the big star of that leap forward, making an investment of US$2.3 billion over the next five years and picking up 70 percent of the state funding in return. The company has claimed a monthly outlay of US$100 million in the last 18 months.

But with production ever on the rise at Vaca Muerta, the state found its bill soaring to almost US$1.3 billion last year as other companies started lining up, such as the state oil company YPF, France’s Total, PanAmerican Energy of the Bulgheroni family or the CGC (Compañia General de Combustibles) of Eduardo Eurnekian – all in exploitation areas which gained the official OK to start operating. And to receive subsidies.


But then came the unforeseen: a run on the currency sending Argentina scurrying to the IMF and promising a zero deficit in record time, causing all flows of money to be cut short or reduced to a minimum. Both the 2019 Budget and the letter of intent to the IMF stipulate that the Vaca Muerta party must calm down, with only US$700 million made available.

Furthermore, the government was noting that it was becoming “saturated” with gas which it could not use for lack of pipelines to inject it into the grid or export it.

The decision as to where to cut then had to be made – whether to find a way to pay less for the gas produced or to incorporate less of the projects already approved. A total of 16 had already been cleared by the Neuquén provincial government, of which eight had also received national endorsement. Any decision would provoke a reaction on the part of the major players in the Argentine economy.

From that moment onwards the mere mention of Resolution 46 in the oil sector or the Casa Rosada was cause for conflict. The Energy Department naturally started consulting the companies as to how the regulatory framework could be changed and was warned by the legal sections of the oil companies that modifying the norm could trigger multi-million lawsuits. These companies were also sensitive to the fact that in the last 18 months Techint had picked up 12 percent of the gas market.

Finally, the government opted to ignore the eight projects only authorised by the Neuquén provincial government and to just fund the other eight without touching the text of Resolution 46. Yet without any formal recognition, it changed the interpretation of a key point – what volume of gas production would be subsidised. Hence the conflict with Techint.

Macri told Paolo Rocca: “Vaca Muerta will create half a million jobs.” But, as confirmed by official sources, the subsidised price will now be paid on the gas which the companies “announced’ that they would produce when they entered the programme and not for what they actually produce.

This difference is not minor. Techint, concentrating 70 percent of the subsidies until now, entered with a production curve estimated at a daily eight million cubic metres but is producing twice as much.

This change implies – according to the market estimates cited by the specialised Econojournal website – that this will cost Techint at least US$200 million.


The company is already preparing administrative litigation in complaint without ruling out going to court, since last year they were being paid according to their actual production and not the promised. The Energy Department asserts that this was never so and that any money paid on top of the promised production was an advance which was later corrected. They also claim to have consulted the legal experts in the CIADI (the International Centre for the Settlement of Investment Disputes, in its Spanish acronym), the Economy Ministry and the Treasury prosecutor.

Needless to say, Techint must also be consulting top lawyers. And the conflict could escalate. Rocca’s company has yet to play its card of downsizing its Neuquén investments.

On Wednesday night Tecpetrol warned the CNV Securities and Exchange Commission that it would be revising its agreements with the state in order to “adjust its flow of funds to the new scenario and improve its financial indicators” in the light of subsidy cuts with specific reference to the Fortín de Piedra area. In the first three quarters of last year alone, Tecpetrol warned, it had lost almost two billion pesos (1,994 million) to this difference between announced and actual production while the total impact could reach 5.65 billion pesos.

A sensitive issue for President Mauricio Macri, who is obsessed with these deposits turning around the dollar deficit which has been undermining Argentina for decades, as was seen so clearly last year. And who would have thought that this could arise from a conflict over legal security with one of Macri’s crown jewels?

Techint, which until now has made no comment, could have an unexpected ace up its sleeve – the statements of the chief authority in this area until very recently, namely former energy secretary Javier Iguacel. He repeated in both the media and meetings with the oil companies that they would be paid the subsidy on the basis of actual production and not the promised curve.

“Javier said a lot of things, let’s wait and see …” the sources from his former area now say.

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Jairo Straccia

Jairo Straccia


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